Fintech companies have become increasingly popular over the past few years due to their convenience in executing financial transactions. The COVID-19 pandemic accelerated the use of fintech as it fulfilled consumers’ ever-increasing demand for payment simplicity, money management, and access to easy credit.
The industry’s growth is driven by newer trends such as buy-now-pay-later (BNPL), neo banks, and platform-as-a-service (PaaS). According to a Vantage Market Research report, the global fintech market is expected to grow at a CAGR of 19.8% to $332.50 billion by 2028.
However, fintech stocks have been under pressure since the beginning of the year due to the Fed’s hawkish monetary policy stance. With inflation rising more than expected in August, the central bank announced the third consecutive 75-basis-point rate hike last week.
The Fed has also guided further aggressive rate increases in the upcoming months. This is expected to dent investor confidence in fintech companies. Fintech stocks’ decline from the premium valuations they were commanding during the pandemic’s peak is evident from the ARK Fintech Innovation ETFs (ARKF) 60.4% decline year-to-date.
Therefore, we think it could be wise to get rid of the fundamentally weak fintech stock PayPal Holdings, Inc. (PYPL). However, investors could reasonably add promising industry participants Visa Inc. (V), AssetMark Financial Holdings, Inc. (AMK), and Regional Management Corp. (RM) to their watchlists to cash in on the industry’s long-term growth prospects.
Stocks to Watch:
Visa Inc. (V)
V operates as a payments technology company that facilitates digital payments among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. It operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions. In addition, the company offers card products, platforms, and value-added services.
On March 10, 2022, V announced that it had completed the acquisition of the open banking platform Tink. Tink enables financial institutions, fintech, and merchants to build financial products and services and move money.
Visa Europe’s CEO Charlotte Hogg said, “Digital tools are driving the new economy, and the combination of Visa and Tink will support greater choice, and quality of digital money services as the lines between commerce, financial services, and payments continue to converge.”
V’s net revenues increased 18.7% year-over-year to $7.28 billion for the third quarter that ended June 30, 2022. The company’s non-GAAP net income increased 29% year-over-year to $4.20 billion. Its non-GAAP EPS came in at $1.98, representing an increase of 33% year-over-year. Also, its operating income increased 2.1% year-over-year to $4.14 billion.
For the quarter ending September 30, 2022, V’s EPS and revenue are expected to increase 15.3% and 15.4% year-over-year to $1.87 and $7.57 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has declined 9.6% to close the last trading session at $179.18.
V’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Stability and Quality. Within the same industry, it is ranked #9. To see the other ratings of Growth, Value, Momentum, and Sentiment, click here.
AssetMark Financial Holdings, Inc. (AMK)
AMK provides wealth management and technology solutions in the United States. It offers an open-architecture product platform, client service, asset allocation options, practice management, support services, and technology to the financial adviser channel.
AMK’s total revenue increased 18.1% year-over-year to $151.20 million for the second quarter that ended June 30, 2022. The company’s adjusted EBITDA increased 24% year-over-year to $49.63 million. Also, its adjusted net income increased 22.1% year-over-year to $32.42 million. In addition, its adjusted EPS came in at $0.44, representing an increase of 22.2% year-over-year.
Analysts expect AMK’s EPS and revenue for the quarter ending September 30, 2022, to increase 5.5% and 10.2% year-over-year to $0.42 and $111.76 million, respectively. It surpassed Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has declined 4.5% to close the last trading session at $18.64.
AMK’s POWR Ratings reflect these solid prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a B grade for Growth, Stability, and Sentiment. Again, it is ranked #6 in the same industry. Click here to see the other ratings of AMK for Value, Momentum, and Quality.
Regional Management Corp. (RM)
RM, a diversified consumer finance firm, offers a wide range of installment loan products to clients in the United States. They have limited access to consumer credit from banks, thrifts, credit card companies, and other lenders. It provides small and big installment loans, as well as retail loans, to help with the purchase of furniture, appliances, and other retail items.
In June, with the inauguration of its first branch in Merrillville, RM announced the expansion of its operations in Indiana, its 15th U.S. state. The new position strengthens RM’s de novo foothold in the Midwestern United States. RM’s President and CEO Robert W. Beck said, “We are very pleased to bring our suite of affordable financial solutions to Indiana for hard-working Hoosiers.”
For the fiscal second quarter that ended June 30, 2022, RM’s revenue increased 23.3% year-over-year to $122.87 million. The company’s total assets rose 29.9% year-over-year to $1.54 billion.
Analysts expect RM’s revenue for the quarter ending September 30, 2022, to increase 22% year-over-year to $125.97 million. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has lost 20.9% to close the last trading session at $29.06.
RM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Quality. It is ranked first in the Consumer Financial Services industry. To see the additional ratings of RM for Growth, Momentum, Stability, and Sentiment, click here.
Stock to Avoid:
PayPal Holdings, Inc. (PYPL)
PYPL is a digital payments company that enables digital payments on behalf of consumers and merchants. Its combined payment solutions comprise its Payments Platform, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, and Hyperwallet products and services.
PYPL’s operating margin came in at 19.1% for the second quarter that ended June 30, 2022, compared to 26.5% in the year-ago period. The company’s non-GAAP net income declined 21% year-over-year to $1.08 billion. Its non-GAAP EPS came in at $0.93, representing a decline of 19% year-over-year.
Analysts expect PYPL’s EPS for the quarter ending September 30, 2022, to decline 14.4% year-over-year to $0.95. Over the past year, the stock has declined 65.2% to close the last trading session at $91.12.
PYPL’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system.
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V shares were trading at $179.36 per share on Thursday morning, up $0.18 (+0.10%). Year-to-date, V has declined -16.80%, versus a -23.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...
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